Russia: New Cabinet Raises Hopes Of Reform

Moscow, 19 March 1997 (RFE/RL) - Russian President Boris Yeltsin has appointed a pro-market team raising expectations that economic reforms will be revived. But analysts say it will have to deliver results quickly to maintain momentum.

Yeltsin reshuffled the government two days ago following promises in his state of the union address last week to kick-start economic reforms. In a surprise move, he named the young reformist governor of Nizhny Novgorod, Boris Nemtsov, to the post of First Deputy Prime Minister in charge of social policy and restructuring energy monopolies. Thirty-seven year-old Nemtsov was placed on the same footing as newly-appointed First Deputy Prime Minister Anatoly Chubais, who was put in charge of the Finance Ministry.

Together with Prime Minister Viktor Chernomyrdin, Nemtsov and Chubais will preside over a revamped and reduced cabinet that includes several younger and fresher faces. Among them are Oleg Sysuyev, the former mayor of Samara, who was put in charge of housing and utilities reform, and Alfred Kokh, who was put in charge of privatization.

With Chubais at the helm, backed up by a reformist team, observers expressed hope that Russia will return to some degree of economic health. An economist at the London School of Economics, Richard Layard, told a press conference in Moscow this week that the new cabinet will be able more easily to tackle the crucial economic problems facing Russia.

"Chubais is a person of enormous ability. Having him in charge of economic policy is the best thing that could have happened." Layard credited Chubais with "saving" Russia from hyperinflation and pushing through the basis of private ownership.

But Layard, who has advised the Russian government on market reforms, painted a grim picture of Russia's economic plight, saying the most urgent task facing the new cabinet was no less than restoring what he called "financial normality." He said in many respects Russia is showing signs of economic health, pointing to low inflation and low interest rates.

However, Layard said the enormous problem of non-payments caused by the government's inability to collect taxes was distorting the economy and stifling growth. He highlighted the growing trend towards the use of barter in the economy, which he said accounted for 40 percent of all sales conducted in Russia. Russia's economy is in many ways more primitive than a market system or even the centrally planned economy of years past.

The vicious circle of non-payments in the economy has caused wage arrears to skyrocket to more than 50 trillion rubles, or about $8.9 billion. With tax collection still well below targets, the vicious circle of non-payments looks set to continue, with millions of workers going for months without pay.

Trade union leaders are pressing ahead with a nation-wide strike planned for March 27 and have predicted that some seven million workers will join the action.

Chernomyrdin, meanwhile, has urged regional leaders to meet with trade union leaders to head off the planned protests and reduce social tensions.

It is against this background of mounting economic problems that Chubais and Nemtsov will attempt to reinvigorate economic reforms. Nemtsov in particular has taken on what he has described as a "kamikaze" portfolio. For one, he has pledged to reform the deeply-troubled pension system in an effort to ensure timely payments.

Nemtsov has also declared his intention to take on politically-powerful monopoly industries, such as the electricity, gas, railroad and telecommunications sectors. He singled out the giant monopoly
United Energy Systems yesterday for charging excessively high prices for nuclear energy, which he blamed for the financial crisis in the industry.

There is also growing pressure on the government to cut housing subsidies, which account for nearly four percent of gross domestic product. Economists say the new government is also likely to step up bankruptcy proceedings against companies which are unable to pay taxes.

Put together, the economic agenda of the new cabinet is likely to be painful in the short-term. Analysts say Chubais and Nemtsov will have to move quickly to at least guarantee payment of pensions and wages to keep the critics at bay.